Taboola.com Ltd. (TBLA) Q3 2022 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to Taboola's Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, [Renwick Johnson] with Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to Taboola's Third Quarter 2022 Earnings Conference Call. I'm here with Adam Singolda, our Founder and CEO; and Steve Walker, our CFO. We issued our earnings press release today before market and it is available along with our Q3 shareholder letter in the Investors section of our website. Now I'll quickly cover the safe harbor. Certain statements today, including our expectations for future periods, are forward-looking statements. They are not facts and are subject to material risks and uncertainties described in our SEC filings. These statements are based on currently available information and we undertake no duty to update them except as required by law. Today's discussion is also subject to the forward-looking statement limitations in the earnings press release. Future events could differ materially and adversely from those anticipated. During this call, we will use terms defined in the earnings release and refer to non-GAAP financial measures. For definitions and reconciliations to GAAP, please refer to the non-GAAP tables in the earnings release posted on our website. And with that, I'll turn the call over to Adam.

Thanks, Renee. Good morning, everyone, and thank you all for joining us for our third quarter call. Q3 was a good quarter. We beat or came near the high end of our guidance on all metrics delivering $129 million of ex-TAC and $24 million of adjusted EBITDA. We're holding our annual adjusted EBITDA guidance for 2022 at $152 million to $160 million while generating strong cash flow. Lastly, due to continued softness in the advertising market and to be cautious, we decided to lower 2022 revenue guidance by 4% and ex-TAC guidance by 6%. We adjusted our cost structure a few months back and I can tell you we're committed to executing our strategy as a profitable growth company. Our track record demonstrates our ability to succeed in that strategy and despite everything that's going on in the world, we're not anticipating a decline in ex-TAC this year versus last. Q4 is historically a high-performing quarter especially for e-commerce. Additionally, this year we also have the potential of positive effect of the World Cup, but we're not counting on it in our forecast given uncertainties in the market. More than ever, our ability to generate cash matters and I'm proud of where we are. For 2022, we expect $17 million to $25 million of free cash flow. We also expect $58 million to $66 million of cash generated before $21 million of net prepayments to publishers and $20 million of cash interest payments, which is another way we look at this internally. We add back publisher prepayments and cash interest payments because publisher prepayments are an investment in our business that we consistently earn back and over time will become insignificant portion of our business to none and cash interest payments are a capital structure decision. Taking a step back, I look at times like this as an opportunity for good companies to become even stronger. We have a strong EBITDA, we're generating cash, we know what we need to do, we have the right priorities and the best team in the world to do so. Now if it wasn't for the macroeconomics, 2022 would have been one of the best years we've ever had. More publishers wins than we anticipated, lower churn and remember this business in a normal time grows 20% year-over-year ex-TAC, converts 30% to adjusted EBITDA and 50% or so of that to free cash flow. This is before investment in our growth initiatives, which have the ability to supercharge our growth including performance advertising, e-commerce, header bidding into display and Taboola News. Each one of these could generate hundreds of millions of dollars for Taboola in years to come on top of our core growth as I mentioned before. We're about $1.4 billion out of $64 billion open web advertising market. And while we're a scaled player in our space, which help us get network effect benefits, there's still so much more growth ahead of us between our core and growth initiatives. On the business front, we're winning a lot more than we're losing and it's very expensive for competitors to take our business. We signed new partnerships with BuzzFeed, HuffingtonPost, Time Out; all massive and very well-known publishers that make this switch to Taboola to power accommodations for their audiences. We signed new partnerships with MOPO, which is a Hamburg publisher, one of Germany leading news portals and [Speed] part of [Moneras Group] in Italy using so many of our innovations to pull a feed newsroom for editors, homepage for you which personalizes the homepage. These are great competitive win for us in the market and a validation of publishers choosing Taboola not only because we generate more revenue, but also because they can empower the entire organization with our technologies. We're also seeing great renewals. We renewed long-term publisher relationships with iMedia, which is big here in the U.S. and Cyzo, one of Japan's top publishers bringing us to 10 years in partnership with each. This is in addition to renewals with long-term publishers partners all over the world like FAZ in [indiscernible] in Latin America. These partnerships happen because of our technology investment. We've spent more than a decade building a core product for publishers that go beyond revenue, which publishers appreciate because it provides value to their entire organization; editorial, audience teams and revenue. Especially as publishers are considering who to partner with for the next three, four, five years, sometimes even more, these investments matter in a meaningful way. Advertisers like us because of our tech which works for them, but also because they're looking at us as a way to diversify outside of the walled garden especially now when there are so many changes around privacy with the open web and Taboola is a contextual powerhouse. I think over time millions of advertisers will look for an alternative to the walled gardens and that's a huge opportunity for us. We talked about our core business and I'm not happy with us guiding down 4% revenue and 6% ex-TAC, but I'm encouraged with us reaffirming our adjusted EBITDA and generating positive cash flow. We're accomplishing all of this while investing in four exciting things that are truly things can help us reimagine the open web as we know it and the growth our partners can experience with us outside of the walled gardens. We mentioned at our Investor Day that our next big milestone is $1 billion in ex-TAC, which implies $300 million of adjusted EBITDA with roughly $150 million of free cash flow and that we're investing in recommending anything and anywhere. Let's break it down. Recommend anything means answering the question what other types of advertisers can Taboola recommend to make our engine even more relevant and drive yield growth. Here we have two main initiatives. Number one, a focus on performance advertising, which help us make different types of advertisers successful with Taboola. We're investing heavily here. We've quadrupled our engineering working on this and the upside here is meaningful for advertisers, publishers and us as well. We already reach 0.5 billion people a day and by making even more advertisers successful, we can make a meaningful impact on our yields altogether, how much we're able to pay our publishers and even more advertisers can rely on us. Number two, second category of recommending anything is e-commerce. We intend to scale e-commerce to become 1/3 of our business over time as well as our publishers revenue. E-commerce for publishers is a good business and retailers want to be on trusted publisher sites all day long, but it takes time to create the content, build an audience and match that audience with the right e-commerce demand. But once publishers get it up and running, they never want to give it up. We believe 1/3 of all of our publishers' revenue will become e-commerce driven. I mentioned that in our shareholder letter, but one of the exciting synergies we're seeing right now around e-commerce is called DCO, which stands for dynamic creative optimization. Essentially it's Connexity's retailers starting to get scale on Taboola supply. DCO is one of the biggest growth engines for social companies and its big for Taboola as well. Which leads us to recommending anywhere and this is essentially where else can Taboola be beyond the boundary of article, homepage and our traditional placements. Here, we have two more main initiatives. Header bidding, which allows us to tap into the multibillion dollar display market. We have momentum and we're live on 50-plus websites. We estimate that existing 9,000 publishers are generating between $20 billion to $30 billion in display revenue a year and there's a high demand from publishers to join our header bidding beta. I mean really high demand for this product. While we're still in early stages, we're seeing strong results anywhere from 5% to 10% win rates and at scale, this will allow us to support our publishers making their display revenue grow and this will grow our share of wallet, make our advertisers more successful and potentially generate hundreds of millions of dollars using our unique first-party data and AI. The last investment is Taboola News. This is where we're integrating our recommendation engine into Android devices these days and over time we intend to be part of audio devices, automobiles and even more. When I think about the future, I think everyone will be fighting for users' attention and time and I'm convinced that trusted news will be everywhere people spend their time, how our kids will discover information. This is already tracking over $50 million a year for Taboola growing triple digits. Moreover, the more this business grows, the more competitive we become as our publishers can start relying on traffic we send them at no cost much like Google does with SEO. As I finish my part, there's no doubt the world is going through a lot these days and it has an effect on our business as much as anyone and that's no fun. Saying that, I personally feel more focused than ever and energized about Taboola's future to become the leading recommendation engine for the open web. We have the ability to change the way consumers discover information outside of the walled gardens anywhere they may be. Our fundamentals, the metrics our management team is tracking every single day are strong, perhaps the strongest they've ever been. Our culture is strong. We have a strong adjusted EBITDA. We generate cash and we have growth engines that can double and triple Taboola. E-commerce, header bidding, performance advertising and Taboola News. I'm looking forward to our upcoming earnings call and engaging with investors in the upcoming months where I'll do the best to answer any question you may have. I'll now pass it over to Steve, our CFO, to talk more about our financials.

Thanks, Adam, and good morning, everyone. As Adam shared, we had a solid third quarter. We met or exceeded our Q3 guidance on all measures despite macro headwinds. Revenue in Q3 was $332.5 million. ex-TAC gross profit was $129.3 million and adjusted EBITDA was $24.2 million. This represented ex-TAC growth of 1.9% year-over-year or 5.7% on a constant currency basis. Pro forma with Connexity, ex-TAC would have declined 5% year-over-year on a constant currency basis. Our adjusted EBITDA margin or the ratio of adjusted EBITDA to ex-TAC gross profit was 18.7%. Q3 revenues decline of $6 million was driven by decreased revenue from our existing digital property partners of $29 million. The weak macroeconomic situation that started in Europe in Q1 spread to the U.S. and much of the rest of the world around the middle of June, continued into Q3 which translated to a pullback by advertisers and resulted in weaker yields and a decline in revenue. Our ex-TAC net dollar retention for our existing publishers was 86% for Taboola on a stand-alone basis. which is an extremely unusual event in our business to have an NDR below 100%. On the positive side, new digital property partners drove $22 million in growth in our gross revenue. As we have said previously, 2022 will be one of our best years on record in terms of the addition of new supply. We also saw growth in our revenues and ex-TAC gross profit from the addition of Connexity to our business as well as growth in Taboola News. Looking at operating expenses, they were up $16.3 million year-over-year. The increase was driven by $12 million of higher employee related costs, which was largely driven by a competitive labor market entering 2022 and approximately $3.4 million of restructuring costs. A majority of the remainder came from the inclusion of Connexity, which we closed on September 1, 2021. We generated adjusted EBITDA of $24.2 million, which was above our guidance of $11 million to $17 million, but was down year-over-year. Adjusted EBITDA margin of 18.7% was lower year-over-year, but in line with expectations. GAAP net loss of $26 million included intangibles amortization of $16 million, share-based compensation expenses excluding the holdback related to the Connexity acquisition of $15.9 million and restructuring charges of $3.4 million, which were excluded from non-GAAP net income. Our non-GAAP net income of $10.2 million was above our guidance of a non-GAAP net loss of $2 million to $8 million. In terms of cash generation, in Q3 we had $23 million in operating cash flow with free cash flow of $11 million. Starting this quarter, we are going to start providing some supplemental information on our cash flow. When we analyze our cash flow internally, there are two items that we add back to free cash flow to provide another way of evaluating the cash generated by our business. First, we add back the cash interest paid on our long-term debt to get to our unlevered free cash flow because that is related to a capital structuring decision we have made. Second, we add back net prepayments that we make to publishers. The reason we add these prepayments back is because we consider them an investment in our business. They are used to secure long-term exclusive supply with our publishers and we get these prepayments back over the life of the contract with the publisher. We can control how much we invest in prepayments. I would note that in 2020 these net prepayments were actually a source of cash rather than a use of cash and we only use prepayments with publishers that we consider strategic and that have strong credit ratings. For the full year 2022, we expect to generate $17 million to $25 million of free cash flow. If you add back $20 million of cash interest expense on our long-term debt and $21 million of net publisher prepayments, we expect to generate $58 million to $66 million of cash before those items. We ended Q3 with a strong balance sheet position and positive net cash. Our cash and short-term investments balance of $308.3 million remains above our debt balance of $287.3 million. Regarding our expectations for Q4 and the rest of 2022, I won't go through all the numbers as they are outlined in detail in our press release. While we performed well against our Q3 metrics, due to the continued softness in the advertiser market, we are opting to lower our full year 2022 revenues and ex-TAC guidance by 4% and 6%, respectively. Having said that, we are reaffirming our adjusted EBITDA guidance of $152 million to $160 million for full year 2022. We are comfortable reaffirming this guidance despite the weakening macroeconomy thanks to cost-cutting actions that we first initiated in Q2 of this year. We further reduced our forward-looking expense base when we announced our cost restructuring program in September. This will have some impact on 2022 expenses, but more importantly, positions us well heading into 2023. I should note that our guidance assumes continued weakness in the macro environment at current levels, but not a significant worsening of the macro environment. While we are disappointed to have to reduce our revenue guidance for the year, overall the fundamentals of our business remain strong. As noted, we continue to expect over $150 million of adjusted EBITDA for the year and healthy free cash flow. Even in a particularly soft quarter like Q3, we generated over $10 million of free cash flow and over $25 million if you factor out interest paid on our long-term debt and net prepayments to publishers. We are seeing near record growth from new publisher partnerships and continued strong growth from Taboola News. We will continue to be judicious in our investments and to manage our expenses tightly while still investing in the key priorities that will drive future growth. We believe all of this will position us for accelerated growth as we come out of this period of economic weakness. And with that, let's open it up to questions.

[Operator Instructions] Our first question comes from Andrew Boone with JMP Securities.

You highlighted the $21 million of publisher prepayments on the call. Given the macro environment still hit smaller players like RevContent, Gemini, kind of five or six players that may be out there may pull back. Can you just talk about your appetite in 2023 to either invest more in publisher prepayments and try to take more share or how do we think about that? And then, Adam, you quadrupled your engineers focused on performance advertising. Can you just talk about where you're pointing them? Is there low-hanging fruit that you see out there on the product front? What are you guys thinking about in terms of improving the performance advertising tool set for advertisers?

Andrew, good questions. So first, I'll take the question about the publisher prepayments. The way we view this is we generated -- we expect to generate over $60 million of cash this year before about $21 million of net publisher prepayments and about $20 million of cash interest expenses. So we feel like that's a healthy level of cash flow. Those publisher prepayments, we look at those as an investment in our business because it's an investment in locking in long-term exclusive supply with publishers. So it helps us do two things. One is it helps us get new publishers to come to us because it's one way that we put our money where our mouth is and really guarantee them that they're going to make the money they expect. And two is it helps us lock in longer-term contracts. So if you're talking to a publisher about a three- to five-year contract, you can get them to move towards five years by upping the amount of cash they get upfront. So that helps us also lock in longer-term agreements. We think these are actually one of the best investments we can make in our business so we do expect to continue to use these as a tool both to win new publishers and to lock in longer-term publisher agreements. So we will continue to use those. We do expect to continue to use them into 2023 and beyond. Having said that, the way we look at it is we set a budget for ourself on those. We look at using it for publishers that we consider strategic so we try and use these where we think we're going to win a publisher that is particularly impactful to our business and we also make sure that we use this on publishers that have very good credit rating. So we basically have very rarely ever lost any of this money that we've used so it's something that we look at as kind of a credit risk. So generally speaking, we have an appetite to continue using those. I think we'll be judicious about it though and we'll always make sure that we generate positive free cash flow even after we use that as a tool. So as we head into 2023 when we budget for these, we'll make sure that we're still generating positive free cash flow even before them. But at the end of the day, it's a great use of cash because it's an investment in our business and getting that long-term exclusive supply that we find so valuable and that helps us win advertisers and grow our business over time.

Let me just add, Andrew, that in addition to that, over time, and I mentioned that in the letter, the more we invest in helping publishers drive audience from Taboola News and things of that nature, homepage for you on the engagement front, e-commerce to drive more revenue. So the more we invest in technology and diversify our business, publishers will have more reasons to work with Taboola beyond just traditional revenue, and that will help us win more publishers. And over time, I suspect that the prepayment will become insignificant to potentially nothing. So that's something that I mentioned in my letter. So right now, it's a great investment. Over time, as we continue to be bigger in investment technology, I suspect this will go to become insignificant or nothing.

Yes. That's a good point. I'll just add one other thing, which is if -- we released some numbers in Adam's shareholder letter, if you look at 2020, when we were in eye of the pandemic, we decided to cut back on those publisher prepayments, and they were actually -- the net of them were a source of cash in 2020. So they're also controllable. So they're something that we can control when we want to.

Yes. So that's on that. And then on the performance advertising, it's our number one as a reminder, and again, it's in my letter, but there are four things we're investing in right now as a company, performance advertising, which will help us drive yields and revenue from our existing publisher base. And that's a huge upside because Taboola already reaches 0.5 billion people a day. So that's big. We have 15,000 advertisers. Google and Facebook each has 10 million. So there's such a huge opportunity there. The second one is header bidding and display advertising. The third one is e-commerce and the fourth one is Taboola News. Specifically about performance advertising and SmartBid, there are a few things that I can mention just specifically right now in the context of your question about what's low-hanging fruit. So the first one is DCO. We're seeing SmartBid is able to look at Connexity. This is one of the synergies that we're most excited about. SmartBid is able to look at Connexity's data and retail advertisers and automatically find supply on our publishers now that it makes sense to put those retailers and automatically change the creative of the retailer on our publishers' site. That is now about 4% of Connexity's revenue. So this is pretty big. If you remember, when we talked about the synergies of e-commerce and Connexity, we said the largest one will be to bring e-commerce to advertisers in our existing supply globally, and that would be probably the top synergies. So that's gaining traction. I would say 50 out of the top 100 Connexity retailers are on DCO now as part of SmartBid ability to do that. So that's one thing that's gearing up and getting a lot of momentum and growing very fast. And if you remember, by the way, if you go back to Snap, Instagram, that was one of the top way they made performance advertisers successful. So that's one. The second thing that's low-hanging fruit is that this quarter, and it's still a Q4 initiative, we're able to use AI to basically predict when the users tend to click by mistake without any intention to convert to do something on the advertiser site. And that's either because of speed of clicks or source of traffic or different placements and SmartBid is able to automatically lower the bid for those situations, which makes advertisers more successful. And again, that's a low-hanging fruit. That's something we're working on right now. We're seeing good results and probably going to continue to work on that in Q4. And then there are more things. I mean the short-term and midterm road map is very, very real. I mean we have target CPA and enrollers and other things. So there's a lot of the short, midterm, I would say long term, the biggest reason we invest so much in performance advertising is because the biggest opportunity we have is to make basically anyone successful with Taboola, which is something that's only walled gardens to date were able to do. So that's the biggest ambition. We have that will take time.

One moment for our next question, please. And our next question comes from Laura Martin with Needham & Company.

Can you hear me okay?

Yes.

Of course.

Fantastic. So just following up -- just building on that last question, where we're going into these very uncertain times and a lot of guys are taking down sort of 4Q and next year, does that affect the cost of your guarantees, like you get better deals in environments like this because you're willing to give them guarantees in an environment where there's so much uncertainty. So building on that last question. And then my second question and last is, I know you guys really like cut down on your employees and cut the free cash flow. But I'm just wondering, so we have Twitter laid off half of its workforce the other day, Meta this morning announced 13% layoff. Does it help you to buy this really great engineering talent that's coming available right now that we couldn't have known when you were sort of tightening your belt a couple of quarters ago. Does it tempt you to try to come into market and buy some of these talented engineers that are getting laid off sort of indiscriminately right now by big tech?

Thanks, Laura. So good questions again. So I'll start with the cost of the guarantees one. So I think these kind of tougher economic times like right now with the macro effect our guarantees in two ways. So on the one hand, our yields are a bit lower, and therefore, we come up closer against those guarantees. The good news is that our guarantees are not a hugely significant part of our business. So we've been around 10% in terms of our tax paid out under guarantees. This past quarter, we were at 12%. So we're still in basically the same range, and it has not had a significantly material impact in that regard. The other effect, which I think is what you were getting at is, can we sign up publisher deals at better margins given the macro and given kind of potential weakness among our competitors. And I -- it's hard to say exactly because every deal is a competitive bidding situation unto itself. But what I will say is, we are having a record year in terms of signing new publishers, as Adam mentioned. And it's basically -- some of that probably has to do with what you're talking about there, where -- while we're seeing yield softness, I think it's affecting some of our competitors even more. So yes, I do think it helps us to sign up more publishers more profitably, and we are seeing a record year in that regard. We're also seeing, by the way, one of the lowest years we've had on record in terms of our churn rate of our publishers as well. So we're signing more, we're losing less. And we have said before, but we think that coming out of this, when the demand recovers, we're positioning ourselves from a supply perspective to be -- to have a really nice growth path coming out of this because supply side is growing really, really well. The only thing that is holding us back a bit right now is the demand weakness. So we're positioning ourselves well coming out of this. So I do think it's the weak macro is helping in some ways.

Yes. I also think, jumping on that, to follow up, I think the fact Taboola is well invested in a variety of services and technologies publishers want is a big deal. So if you're a publisher now and you're about to sign a three-year, five-year, five-year partnership, one, Taboola is very diversified. We have e-commerce revenue. I just mentioned DCO, being 4% of Connexity and 50 of the top 100 clients are using DCO. You know that video is growing for us. We have Taboola News on the audience front with integration with top OEMs. So publishers, especially right now, they're looking for partners that can do more than just revenue. So one, Taboola's revenue is further diversified and stronger than others. We're also among the largest players in the space, but also they have a lot of technologies that can use at no cost, which help them recover their own business and drive growth. So all of those things, I mean, really contribute to some of the most amazing publishers who chose Taboola just in the last 90 days, I mean Buzzfeed and Huffington Post, MOPO in Germany, Terra in Brazil, Cyzo in Japan. I mean these are incredible partners that choose Taboola. And I think now more than ever, we're getting that level of momentum. And that also why it helps us to reaffirm $152 million EBITDA this year, which I'm very proud of, I think, which leads to your second question, we're trying to run a business that not only is a great business now, but can be even stronger on the other side of it. And especially, you're able to generate strong EBITDA and strong cash flow, I think we'll have many, many opportunities other companies might not, right? In 2008, it was one of the best years for Google attracting talent. So we're hard at work looking for great people. At the management level, we're seeing what companies do make what type of changes. We already have a relationship with different engineers that work in other companies. So my hope is that, we'll be able to have opportunities with talent, but not only -- I mean we might have other things that will come our way, smaller M&A opportunities and different things. So having cash flow and EBITDA in times of uncertainty is a huge source of strength.

One moment for our next question. And our next question comes from James Kopelman with Cowen.

The first is for Adam. It certainly looks like you're seeing a lot of strength with new publisher wins. Can you talk about the biggest factors that are attracting these publishers over to Taboola? And then as you look out maybe a year or two ahead, what are the key areas of focus and investments that will help you to continue to improve these value-added services that you offer the publishers? And then I have a follow-up for Steve.

Yes. So there are three reasons now why we're in. And I can tell you where I think it's going two, three years from now. So right now, if you look at what can publishers do, most companies in our space invest millions of dollars to maybe low tens of millions of dollars in R&D, and we invest close to $100 million or around $100 million a year for a bunch of times. So if you look at just Taboola News as an example, we've been working on this for five years. If you're a publisher working with Taboola now, some of our larger publishers get 5% to 10% of traffic from Taboola News. Now to give you an example, if you were to buy traffic at that level from anyone, it could cost you millions of dollars, but working with us, you get the traffic for free. Now we all know that Google became a very important piece of the open web because they were able to drive SEO traffic. So those who control traffic and are able to help people discover things and get to publish your websites, it's as important, if not more than revenue. That's $50-plus million of revenue for Taboola this year. And I already mentioned last earnings that -- we'll spend about $0.5 billion clicks to publishers in 2022, $0.5 billion. You can only imagine what happens to us when we're going to grow that business to billions of clicks a year. So audience is one of them. The second thing is that when you think about revenue because we're diversified because we're able to bring different types of advertisers because we invest in AI so much, I believe our revenue is between 30% to 50% higher than any other companies in our space. So that's when you work with us by just getting a revenue share, you make more money. And you know that if you choose someone else, either they lose money by working with you or you'll have a very tense relationship with them because they'll always try to improve the terms they had with you, working with us. And you saw on the blog post that I wrote, we have many publishers that are 10-plus years with us. You know money is coming in your way. You know it's going to grow every month and every quarter because of our investment in technology. So we have sort of the buying power in that way because our 60% of revenue, a lot of times is 100% of other companies' revenue. So that's the second reason. And the third one is that, you don't want to just get money, you want to empower your editorial team, your subscription team, your product team and by working with us, I can tell you in about two weeks from now, one of our largest publishers, they are coming in with almost 10 people, Head of Audience, Head of Product, Head of Subscription, the Chief Editorial person, none of them is even in the revenue team, and they're all coming to see what can we do together to help drive engagement. That's the third reason. So by working with us, we can make every person visiting your website to be more engaged, consume more content and come back. So those are the three reasons people choose us now. And that's why you see this rocketship momentum even in the time of recession, maybe especially in time of a recession. Over the next two, three years, I can tell you where I think it's going, it's more of a lifetime value type of approach. So different people have different things they want to do in different times. So what we want to do over time is we're able to say, well, this person right now on this article page or on the homepage might want to subscribe. But maybe in an hour, they want to click on a video. And maybe when they're on a mobile phone, they want to watch a gallery or movie, you can send them up to a newsletter. So we're going to take more of a -- think of Amazon and how they think about lifetime value of a buyer over the next years, they interact with Amazon. We kind of want to bring this retail approach of lifetime value to the open web and help our publishers think about revenue per user for the time they interact with that person versus just for that immediate session. So that's where I think it's going over the next two, three years.

Great. And then just a quick follow-up for Steve. Steve, as we think about the broader macro into October, now into November, can you provide any color on what you're seeing in terms of what may be driving additional softness in ad demand or what you think might have changed from an advertiser spend perspective? Any color there would be helpful, especially if you could call out any ad verticals or maybe regions that are seeing potentially additional deterioration relative to the third quarter?

Sure. So first of all, we're seeing relatively normal Q4 seasonality at this point. So we're not seeing anything that's kind of out of the normal for Q4 knowing that we entered the quarter kind of weaker. So we're seeing kind of a little bit more stability there. In terms of verticals and the like, we're pretty well diversified. So we're fairly well shielded from any single vertical. We've seen things come and go over the course of the year. Cars at one point were really weak or the auto vertical is very weak, and now it's a bit stronger again. Travel, obviously, at one point was much weaker, and now it's much stronger again. So there are ups and downs in various verticals, but it kind of gets balanced out in our business, and we don't see any particular area that stands out. I think the way we're looking at things right now is, we can't really predict the macro, but the fundamental -- the underlying fundamentals of our business are very strong. So we've mentioned a few times that we continue to add new supply like Buzzfeed, which just launched with us and all of that is very strong. And we feel like there will, obviously, at some point, demand will be coming back, and that's going to really give us a good growth path from there. I think in general, what we're seeing on the demand side is, we're keeping our advertisers, they're just spending less with us. And so at some point, we think those budgets are open back up. But in general, fundamentals are still strong, and it's not like there's a particular vertical or anything like that, that's driving softness. It's just advertisers have reduced budgets a bit right now.

[Operator Instructions] Our final question comes from Stephen Ju with Credit Suisse.

Okay. So Adam, given what you're talking about in terms of the potential for higher yield for your publisher partners, I mean, in the event that you lose existing partners or lose an RFP process, what is the reason business may be heading to some of the competitors at all?

Yes. So one, let me just say we win a lot more than we lose, and that's not an event we see a lot of times. But when we do lose, usually someone else was able to -- or wanted to commit for a level of revenue we thought would be not responsible and not something that would be a good partnership for a long time. So I would say one reason would be some revenue commitment that we would model as a bad partnership. And from our experience, we have T-shirts, many of our employees here have, it's called always come back. They always come back. And what happens when you sign a best partnership, in the moment, you might find it to be satisfying because you want. But over time, tension is being built. You're not able to generate that revenue. You're not able to pay that revenue and those companies tend to eventually break the relationship and those publishers, a lot of times come back. And there are many of those cases, and that's why we have the T-shirts, they always come back. So I'll say one reason is revenue. The second thing is, it could be relationship. We're still a small company, only $1.4 billion out of $64 billion. So a lot of times, there may be a publisher that works with someone else for the last 10 years in the strong relationship. And at times, those relationships matter and we appreciate that. So that can be another reason why we lose. So I would say mainly when we do not win, it's either some revenue irrational decision by someone else, which can happen many times. But when it happens, that's the reason we can lose. And second thing is relationship, which, over time, we hope to build those relationships ourselves and win the deal.

At this time, I'd like to hand the conference back over to Mr. Adam Singolda for closing remarks.

Thank you. So I wanted to just say thanks, everyone, for joining today. There's obviously a lot going on. I'll say a few things that I mentioned in my letter. One, personally, I feel more focused than ever. I just talked to a few people this morning. A select Taboolas of 30 people start up and how energized and focused people are. Our people are strong. And I'm energetic about the future of Taboola to become the leading recommendation engine for the open web and our ability to change the way consumers discover information outside of the walled garden, especially during these days with the privacy and all this madness that we're seeing. I'm so optimistic about trusted source of information and how consumers will discover news. Our fundamentals, the metrics that our management team is tracking every single day. We're getting daily e-mail with those things. Those are strong, perhaps the strongest they've ever been. Our culture is strong, we have the strong EBITDA, we generate cash and we have growth engines that can double and triple Taboola, e-commerce, header bidding into display advertising inventory, performance advertising and Taboola News. So when I look at all those things, I know those times are crazy, but we're focused. I'm excited about the future, and I look forward to talking to many of you. Thanks for joining today.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.